Chunlai Education Group seeks to raise up to HK$890 million in Public Offering First Capital Securities serves as Joint Bookrunner and Joint Lead Manager

2018.08.31

On 31 August, China Chunlai Education Group Co., Ltd (Stock Code: 1969.HK) held a roadshow luncheon in Hong Kong and officially began an Initial Public Offering. Chunlai Education Group plans to be listed on 13th September, while CLSA will act as its Sole Sponsor and First Capital Securities Limited (“First Capital Securities”), a wholly-owned subsidiary of First Capital International Finance Limited, under China First Capital Group Limited (“CFCG”, Stock Code: 1269.HK) will act as Joint Bookrunner and Joint Lead Manager.

It is reported that Chunlai Education Group's Initial Public Offering schedule will run from 31 August to 5 September, with the aim of issuing 300 million shares, 90% of which are placement shares while 10% comprise a public offering with the price range of HK$2.08 to HK$2.98 per share and the expected funds raised amounting to a maximum of HK$894 million. Chunlai Education Group officially submitted the listing documents to the Hong Kong Stock Exchange on 28th February of this year and the listing hearing at the Hong Kong Stock Exchange was duly passed on 16 August. If every application procedure moves forward as scheduled, Chunlai Education Group will become the sixth private education group from mainland China listed in Hong Kong in 2018.

Chunlai Education Group, a Private Higher Education GroupA Leader in Central China and Ranked Fourth Across the Country

According to statistics from Frost & Sullivan, measured by total student enrollment, Chunlai Education Group is the top-ranked private education group in Central China and the fourth-ranked education group in the country.

Chunlai Education Group was founded in 2004 and currently operates three private colleges in Henan Province: Shangqiu University, Anyang University, Shangqiu University in Kaifeng city (Applied Science and Technology of Shangqiu University.) They also participate in the operation of one college in Hubei: Yangtze University College of Technology & Engineering in Hubei Province. The total number of students currently enrolled in the first three institutions is 45,200, and student enrollment in Yangtze University is 7,789, making a total of 53,000 enrolled students. Along with the increase in the admission quota and enrolled students in recent years, the utilisation rate of all colleges operated under Chunlai Education Group reached 90%.

Tuition fees and boarding fees account for all sources of income for Chunlai Education Group. In fiscal years between 2015 to 2017, tuition income accounted for 89.7%, 90.0%, and 90.2% of total revenues, respectively, while boarding fees, for the same period, accounted for 10.3%, 10.0%, and 9.8%, respectively. In the first half of fiscal year 2018 (as of 28th February 2018), Chunlai Education Group achieved revenues and gross profits of RMB244 million and RMB143 million, respectively, and adjusted net profit reached RMB70.5 million. During the period, gross profit margin and adjusted net profits amounted to 58.5% and 28.9%, respectively.

With reference to its “Prospectus”, 50% of proceeds collected from Chunlai Education Group’s IPO fund-raising will be ear-marked for acquisition of land use rights and pre-payment of construction and repair costs for the campuses, 30% will be used for acquisition of additional colleges or collaborations with other universities in China, 10% will go toward partial repayment of loans, and 10% is allocated for working capital and general corporate purposes.

It is worth noting that Chunlai Education Group has currently signed a final acquisition agreement for sponsor interest in the Yangtze University College of Technology & Engineering in Hubei Province . If the acquisition is eventually approved by the relative authority, the revenue derived from Yangtze University will also be consolidated into the operational results of Chunlai Education Group. According to the latest statistics, during the academic years 2017 to 2018, the total student enrollment in the Yangtze University College of Technology & Engineering reached 7,789. In fiscal year 2017 (as of 31st August 2017), the college recorded revenues of RMB95.4 million and gross profits of RMB27.5 million. In the first half of fiscal year 2018 (as of 28th February 2018), the college recorded revenues and gross profits amounting to RMB49.9 million and RMB10.4 million, respectively.

Mr. Hou Junyu, Chief Executive Officer and Executive Director of Chunlai Education Group, commented that in order to strengthen the Group's positioning in the private higher education market and further enhance the Group's reputation, Chunlai Education Group plans to continue to improve campus infrastructure construction and step up investment in new projects in order to facilitate the Group’s overall future development. Mr. Hou also intends to expand school coverage to secure a greater market share as well as speed up expansion through mergers and acquisitions and through opening up new colleges. The targets of mergers and acquisitions will be independent private undergraduate colleges endowed with comprehensive comparative advantages in provincial capitals.

Education fueled with Finance, First Capital Securities further attempts another IPO listing in the education sector

If Chunlai Education Group successfully completes its IPO in Hong Kong, it will become the sixth private education group from the mainland China that has staked a claim on Hong Kong’s stock market since 2018. Previously China Xinhua Education, 21st Century Education, Tianli Education, Bojun Education and Hope Education all completed their IPOs. At the same time, Chunlai Education Group has also become the fifth mainland education Group that First Capital Securities participated in to initiate an IPO in Hong Kong this year.

Over the past two years, along with accelerating securitisation of China's educational assets, the number of private education institutions from mainland China going public in Hong Kong has soared. Based on the brand influence and market appeal of CFCG in the field of “education + finance”, the Group’s subsidiary, First Capital Securities actively participates in the IPO projects of private education institutions from China to effectively promote a cooperative hub between private education institutions on the mainland and the Hong Kong capital market, leveraging on “education fueled by finance”. In 2017, five mainland private education institutions initiated IPO projects in Hong Kong, and First Capital Securities was engaged in three of them from 2018 until today. Six mainland education stocks have applied for IPOs in Hong Kong, and First Capital Securities participated in five of them.In addition to IPO projects for mainland China’s private education institutions in Hong Kong, First Capital Securities also participated in other educational IPO projects, including Top Education (Stock Code: 1752.HK) and Bexcellent Group (Stock Code: 1775.HK), as well as other non-educational IPO projects, such as Kinergy Corporation (Stock Code: 3302.HK) and Sanshan Brand (Stock Code: 1749.HK), among others.

As the world's leading educational and financial service group, China First Capital Group relies on its corporate mission: “Finance facilitates education, education facilitates the betterment of destiny.” and intends to provide comprehensive financial service support for more prospective private education enterprises. They will achieve this through a “finance facilitating education” strategy, which includes providing pre-IPO financial consultations, underwriting for IPO listing, post-IPO investment-related mergers and acquisitions, securities trading, brokerage services, and wealth management, asset allocation, overseas property ownership and other related financial services involving travel overseas for educational enterprises and study programmes abroad.

On the 10th of this month, the Ministry of Justice announced the “Implementation Regulations of the People’s Republic of China on the Law Regarding the Promotion of Private Education” (Revised Draft)(Draft for Review), drafted and submitted for assessment and evaluation by the Ministry of Education. This new set of provisions and amendments have sparked great attention from the education and investment sectors, as well as a noticeable price adjustment in China’s educational stock. However, CFCG believes that the initial intention and spirit of the “Promotion of Private Education” is still along the lines of promoting the development of the private education industry and the transformation and upgrading at the industry level; with the submission of the “Implementation Regulations of the People’s Republic of China on the Law Regarding the Promotion of Private Education" for review and the subsequent procedures of enactment and implementation, education sector will usher into the process of “eliminating malicious trading falsehood, asset bubbles, impetuous buying and selling decisions” and returning to rationality, and prompting educational enterprises to actively transform their development strategies and profitability models to maximise commercial value derived from the education industry.China First Capital Group believes that the market demand for private higher education has remained strong and resolute, and is unaffected by the peak-to-tough economic cycle. Along with a trend of policy support, government support and integration of industry and finance, various industries will be favorably impacted. With the liberalisation of ‘rights-to-charge’ for private higher education in China and the relaxation of independent pricing rights, private higher education institutions can now offset the cost increase attributable to tax compliance through an upward tuition adjustment in order to maintain an overall stability in profits. From this perspective, the business, operations and investment logic of private higher education development have not changed, and the value of medium and long-term investments on private education has become increasingly perceptible.

China First Capital Group is firmly optimistic towards the development of China's higher education industry. Founded in a large province like Henan Province, Chunlai Education Group, an outstanding private higher education group, is distinctively favored by a vast population that has given birth to a high demand for education. As such, it has admirably endowed with many developmental advantages and strong market competitiveness that testifies to witness a thriving prospect and market performance.